Author: Bob Mendes

Bob Mendes represents all of Nashville as a Council-At-Large member of Nashville’s Metro Council. He is Chair of the Council’s Charter Revision Committee, a member of the Metropolitan Audit Committee, and a member of the Council’s Budget & Finance Committee, Rules & Confirmations Committee, and Ad Hoc Affordable Housing Committee. Bob also practices business law at Waypoint Law PLLC. Bob’s complete bio is here. You can follow Bob @mendesbob.

The budget problem and the proposal

For important background about the history of tax rates and property value reassessments, read this first. And also please read my May 11 post about this year’s budget. The central premise of that post was that the “Metro government botched the…resetting of property tax rates last year.”

The proposed budget for the upcoming Fiscal Year 2019 has been called a “status quo” budget. But it is alarmingly thin — especially when you consider that the budget crunch is expected to be worse a year from now. The proposed budget has these problems:

  • It funds our schools a full 5% less (about $39 million) than they have requested to educate the children of Davidson County.
  • It requires repealing the employee pay plan legislation passed a year ago in June 2017 because Metro can’t afford to provide the cost of living increases promised in that legislation.
  • It requires using rainy day funds to make ends meet.
  • It requires a one-time sale of $23 million of prime real estate to make ends meet.
  • It requires a one-time sale of $15 million in parking meter enforcement rights to make ends meet.

The fact that Metro is entering a multi-year budget crunch during boom times is making people mad — really mad. The citizens of Davidson County don’t feel right now like Metro’s spending matches its values. We have been told that downtown tourism is the economic engine that we need to pay for everything. But here we are having record tourism and a budget crunch, and not able to honor our obligations to our schools and our employees.

The situation calls for immediate action and long-term action.

On the long-term front, I am confident that the Metro Council is going to reassess how economic incentives are judged and awarded. Most citizens believe that downtown has enough momentum to be self-sustaining and they would like to see more tax dollars spent in communities outside of downtown. Unfortunately, any reassessment and realignment like this won’t happen overnight or in a single year.

In the short-term then, we must look at revenue and expenses and how to make ends meet while also honoring obligations to schools and employees.

On the expense side, I expect that the Council will be proposing many cuts to many items in the upcoming budget. We are too early in the process for me to have an idea of what those cuts will be. However, I am certain that there is not enough fat in the budget to cut that would allow Metro to honor its school and employee obligations. We have to look at the revenue also. This has been true historically, and it is true now.

On the revenue side, I along with other Council members are proposing a $0.50 property tax rate correction. This should have been done last year by the Mayor and/or the Council when the regularly-scheduled property value reassessment dropped the rate by $1.361. Adjusting the rate by $0.50 now would allow Metro to fund:

  • The school system’s requested budget (FY19)
  • Employee cost of living increases (FY19, 20)
  • Replenish Metro’s rainy day “5% funds” (FY19)
  • Pay known, already existing new debt obligations (FY20, 21)
  • Make up for the one-time sales of real estate and parking meter enforcement to cover budget this year (FY20, 21)
  • Cover minimal 1.5% growth in expenses (FY20, 21)
    • Remember, inflation is running at 2.5% — so planning for 1.5% growth leaves no room for error

This rate adjustment would only cover basic existing government operations until the next property value reassessment. It would not leave any room for funding for additional police or firefighters, and would not leave any room to provide additional funding for important programs like affordable housing.

To help show the numbers involved, here is a worksheet. Metro Finance provided the numbers for me. In four columns, it shows what “Status Quo” looks like until the next reassessment, then what funding the employee pay plan and adequately funding FY19 would look like, and then the last two columns add enough funds to cover minimal inflation of 1.5% and 2.0% respectively. Hopefully, the worksheet is self-explanatory.

In addition to correcting the property tax rate, it would be smart to ask Metro department heads to proactively find a way to operate 1-3% under budget in the upcoming year. This would further replenish Metro’s cash reserves.

Finally, here’s a link to some frequently asked questions that I am hearing about the $0.50 rate correction proposal.

 

 

Correction, May 21, 2018: Metro Finance says that the one-time sale of real estate is expected to bring in $23 million. This post and the linked worksheet previously said $38 million.

 

FAQs about $0.50 rate correction

Please read this and the posts linked there first.

These are some of the questions I am hearing about the proposed $0.50 property tax rate adjustment:

What is the proposal?

Adjusting the rate by $0.50 now would allow Metro to fund:

  • The school system’s requested budget (FY19)
  • Employee cost of living increases (FY19, 20)
  • Replenish Metro’s rainy day “5% funds” (FY19)
  • Pay known, already existing new debt obligations (FY20, 21)
  • Make up for the one-time sales of real estate and parking meter enforcement to cover budget this year (FY20, 21)
  • Cover minimal 1.5% growth in expenses (FY20, 21)
    • Remember, inflation is running at 2.5% — so planning for 1.5% growth leaves no room for error

This rate adjustment would only cover basic existing government operations until the next property value reassessment in 2021. It would not leave any room for funding for additional police or firefighters, and would not leave any room to provide additional funding for important programs like affordable housing.

A $0.50 rate adjustment is the minimum necessary for Metro to honor basic obligations to our schools and employees. More information is here.

Why is a property tax rate correction necessary?

As I have said in other posts, the “Metro government botched the…resetting of property tax rates last year.” In 2017, the Metro Property Assessor’s office ran its typically good property value reassessment process, but then Metro skipped making a simultaneous rate adjustment. This was out of step with historic practice in Metro and must be corrected. More info here.

Don’t we need a referendum to raise property taxes?

No. Under the Charter, we would need a referendum to raise the total property tax rate above $4.69. The proposal is for $3.655, substantially less than that cap.

Why propose this now?

The Mayor proposed a budget on May 1, and the Metro Council must approve a budget before the end of June. The budget process is the only opportunity to correct the property tax rate. The $0.50 adjustment is being proposed now to allow enough time for consideration before the budget is passed next month.

Why don’t we make corporations pay their fair share?

First, commercial properties pay approximately 62% of property taxes in Davidson County. Any rate adjustment will be paid primarily by businesses.

Second, I am confident that the Metro Council is going to reassess how economic incentives are judged and awarded in Nashville. Most citizens believe that downtown has enough momentum to be self-sustaining and they would like to see more tax dollars spent in communities outside of downtown. Unfortunately, any reassessment and realignment like this won’t happen overnight or in a single year. This rate adjustment is necessary for Metro to honor its immediate obligations while we address any inequity in economic incentives, which will take longer.

Does this impact the current election for Mayor?

I certainly hope not. While everyone should be sure to vote and not take anything for granted, I assume David Briley will be elected to serve out the last year in Megan Barry’s term. My sense is that the timing for suggesting a rate correction would be criticized by somebody no matter when the suggestion was made. Rather than trying to read the tea leaves on that, the timing is motivated to give the community as much time as possible to digest and analyze the situation before the Council votes on a budget in June.

I may supplement this list over time.

Out of step with historic practice

Metro handled its property tax rates in a historically unusual way last year.

Most of the time when Metro has done a periodic property value reassessment (which is required to be revenue neutral), Metro has simultaneously raised the property tax rate. For example, in 1997 (Bredesen was Mayor), the property value reassessment process (which has to be revenue neutral) dropped the property tax rate by $0.92. But Metro simultaneously raised the rate for FY98 by $0.54. When these two actions were netted against each other, the total property tax rate dropped by $0.38, from $4.50 to $4.12. Having the reassessment work in tandem with a change in rates has been the historic norm in Nashville.

(For those of you that want to follow along with raw data, here’s a link to pages A-24 and A-25 of the Metro Citizen’s Guide to the Budget. Page A-24 has a full list of historic property tax rates. Page A-25 gets into the weeds of showing every change to the rates over the years — including information about whether a change was due to a reassessment or tax increase. Also, here’s a link to my summary of these two pages. For those of you who want to follow the raw data and also like to double-check math, there are two numbers on Page A-25 that are incorrect. I think Metro Finance will update those soon.)

There have been three exceptions to doing a reassessment rate drop netted against a simultaneous tax rate increase.

For FY85, the reassessment drops the rate to a then all-time low of $3.17. That rate lasted only one year. Anecdotally, from people who have been in Metro for decades, this very low rate caused an immediate budget crunch and the rate was raised by $0.75 (to $3.92) the next year. That lesson was apparently learned well, because there were rate hikes paired with every reassessment after than until the Great Recession.

The second exception was in 2009 (for FY10). This was the very early days of the Great Recession. The reassessment dropped the rate from $4.69 to $4.13. By 2012 (for FY13), the reassessment when rates were usually changed was still a year away and Metro needed additional revenue. So, the Dean administration adjusted the rate a year before the reassessment up to $4.66. This increase was designed to give Metro adequate additional revenue to make it through the five years until the 2017 (for FY18) reassessment.

In both of these example, whether it was a mistake like in FY85 or for macro-economic reasons like in FY10, Metro had to correct the property tax rate before the next reassessment.

The third exception was last year in 2017 (for FY18). The reassessment process was done properly and dropped the rate by $1.361, from $4.516 to a new all-time low of $3.155. There was no simultaneous change in rates to increase revenue for our growing city. I know people will want to dig into why Metro bucked the historic trend. Surely, the example of FY85 should have predicted that setting an all-time low rate might cause an immediate cash crunch. Speaking just for myself, I think the Council might have been bitten by a side effect of term limits. The last time this was done “normally” was before the Great Recession, and none of us were in office at that time. That’s a pretty weak excuse, but one way or another, the traditional timing for periodic rate corrections fell by the wayside.

um…about the budget…

The proposed FY19 Metro budget has been out for ten days now…and it’s not good…and this is just the first year of a multi-year problem.

The quick top line summary is that the proposed budget would renege on legislation passed last June for employee cost of living increases and gives our schools only $5 million of the approximately $45 million that MNPS asked for. And in order to fund this bare bones, mostly status quo budget, the budget proposes selling $23 million of “surplus” Metro property and getting a $15 million one-time payment for outsourcing parking meter enforcement. Finally, there is consensus that the FY20 budget will be worse and require budget cuts, probably across the board.

Why this is happening? There are many contributing factors, but the single biggest is that the Metro government botched the reassessment and resetting of property tax rates last year. I don’t want to get too wonky, but nearly every time in the past when Metro has done a property value reassessment (which is required by state law to be revenue neutral), Metro has also changed the property tax rate (which can increase revenue). These are usually done at the same time because the revenue neutral property value reassessment already changes everyone’s tax bill. When revenue is needed for a growing city, it makes sense to change the rate when everyone’s payment amount is already changing due to the reassessment.

But last year, Metro only did the reassessment. The reassessment caused the property tax rate in Metro to drop from $4.516 per $100 of assessed value (which was pretty low historically) down to $3.155 (which is an all-time historic low rate). In almost every other reassessment in the history of Metro, the city would have reset the rate somewhere between these two numbers, which would have increased revenue. The failure to do this last year is the biggest reason why funds are short this year. And because property tax reassessments are on a four year cycle, this is also why Metro will be squeezed for cash at least into FY20.

Of course, there were other factors. For example, there were a high number of assessment appeals from large commercial properties last year. Since a majority of property taxes are paid by commercial properties, this impact is real. Also, the State of Tennessee continues to underfund Metro’s school system. There is ongoing litigation by MNPS to try to fix this, but the budget impact on Metro continues.

Will tightening Metro’s belt on spending correct this revenue problem? I don’t think so, not completely. I mean — Metro definitely should cut any fat that it can. But the proposed budget is already getting into the seed corn just to make ends meet this year. Is Metro going to find another $23 million of real estate to sell in FY20 to make ends meet then? Even if Metro could cut enough expenses to fund promised employee raises and education this year, is there enough fat to do it again in FY20? It’s hard for me to make the math work on Metro cutting its way to a fully-funded budget.

What can be done to correct this problem? The Metro Council is only one week into our budget meetings. I am hearing lots of ideas about where to cut expenses. I think we will cut expenses, perhaps aggressively. There are going to be tough conversations about how far we can cut back without eroding important government services, hurting Metro employees, or shortchanging our kids’ education.

I will update you all as the budget process unfolds.

FUN FACT: The previous all-time low property tax rate was in 1984-85. The rate that year was $3.17. That lasted only one year. It was quickly corrected by 75 cents, up to $3.92 for the rest of that reassessment cycle.

 

Correction, May 21, 2018: Metro Finance says that the one-time sale of real estate is expected to bring in $23 million. This post previously said $38 million.

TIF step-by-step

With the budget crunch this year, many people are asking legitimate questions about when and how tax increment financing (TIF) is used. Some of those conversations are getting bogged down in trying to understand exactly how TIF dollars flow. This post is not about the important questions of how and when to use TIF. This is a technical description of the flow of money in an effort to relieve some of the side questions about how it works.

What happens when MDHA provides tax increment financing? There are two key starting points to know. First, a baseline amount of property tax is established. If a property pays $10,000 per year in property taxes before the new development, that $10,000 is the baseline. When the new building is done, it will generate more taxes — say, $30,000 per year. The difference between the post-development tax bill and the pre-development bill is the “tax increment.” In my example, the tax increment would be $20,000 per year. Second, with TIF, it is MDHA that borrows money from a bank. MDHA then provides the loan proceeds to the developer. The developer will typically use the MDHA loan proceeds as part of its equity in financing a project.

Next, the project is built. The new building then gets its new, final property tax assessment. And then the owner pays the full amount of those property taxes to Metro just like everyone else. However, Metro and MDHA will have made a note of the baseline tax ($10,000) and knows to think about the baseline ($10,000) and the tax increment ($20,000) differently. More about that in a second.

Whenever Metro receives any property tax revenue, it automatically allocates the money to its several Funds — including the General Fund, the School Fund, and the School Debt Service Fund. This bears repeating — every dollar received including the tax increment dollars gets automatically allocated in certain fixed percentages to Metro’s various accounting Funds. When you pay your property taxes, about 41% gets allocated to the School Fund and the School Debt Service Fund, for example. And a TIF project works the same way — about 41% of its property tax payments get allocated to those same two of Metro’s Funds.

Then each year in the budget, each of the Funds has an expense line item where its share of the tax increment from TIF properties is deducted out and given to MDHA. Then MDHA uses this money to pay back the TIF loans.

This technical accounting flow of money among Metro and MDHA does not match up with the conventional perception of TIF loans. The common understanding is that Metro has decided to keep property taxes for TIF properties artificially low and that Metro never sees the money. While the end result that the tax increment is not available for typical government services is the same, the actual mechanism is different. Metro does collect the full property taxes on each TIF property, allocates the tax increment to its various Funds just like all other property tax revenue, then debits the tax increment money out of the Funds and over to MDHA, and then MDHA pays the loans.

As we wade into a budget season where people are looking for money, I know that some are seeing the budget line items for payments to MDHA and asking about it. Again, the sole goal here is to explain the mechanism.  The more important long term question is about how and when to use TIF.

Previous posts related to TIF herehere, and here.

Storm has been brewing for a while…

People in Nashville are understandably angry about having a tight budget in boom times. But this storm has been brewing for a while.

During the 2015 election season, one of the things that voters all around the county wanted to talk about most was “how come I’ve got problems in my part of town and we spend all that money downtown?” Voters have been ahead of the government on this. This budget season is making people wonder how they knew there was a problem and their leaders didn’t.

My comments in 2015 were centered around the ideas that: (1) economic development spending is not all “good” or all “bad”; and (2)  there simply isn’t enough information available for even well-informed people to have any idea whether particular projects are a good use of funds or not. My argument then was that more information and more transparency would lead to better decisions.

I know I wasn’t alone in this. One mayoral candidate talked about these issues as his central platform, and another two had a heavy dose of these issues.

I also know I wasn’t the only Council member to hear these issues from the community. I’ve tried to make progress on this. My first legislation in office — along with 24 co-sponsors — was tax increment financing reform. The ordinance requires annual property-by-property detailed reporting about TIF projects by MDHA. This legislation also stopped the practice of using property tax dollars from one redevelopment district for projects outside the district. The fact that I had 24 co-sponsors sign onto this shows how much we heard about TIF from the community.

Last summer, I also passed legislation requiring Metro to have a more detailed “debt management policy.” Before this, Metro did have a written policy about how to decide the right amount of long term debt. But, paraphrasing, the previous policy was basically a few sentences that said “Metro considers many appropriate factors in deciding how much debt is appropriate.” The new beefed up written policy — starting at page 5/21 in this PDF — outlines specific factors to be considered and also for the first time acknowledges that Metro’s unfunded retiree benefits obligations should be considered when making decisions about long term debt. (More about the $3 billion unfunded retiree benefits obligations here.)

As a Council, we have also stood in the way of the downtown flood wall for these same reasons. I have felt and continue to feel that there is not popular support around the county for a $125 million downtown flood wall. This project might well be technically sound and perhaps needed to protect Nashville’s lucrative downtown business and entertainment district. But by the time of the 2015 campaign season, and continuing through today, voters have had it with what feels like opaque insider development decisions that mostly impact downtown. We shouldn’t spend that much money on a flood wall without addressing the underlying distrust issues that have been brewing for a while now.

During each of the previous two budget cycles, I have also raised questions about how the percent of the budget that Nashville spends on long term debt could be increasing while we have been in boom times. If your get a raise from $50,000 to $55,000 per year, you’d like to see the part of your paycheck that goes to debt decrease, not go up!! Voters maybe haven’t known the exact numbers…but they have known that something wasn’t quite right.

Back in 2015, these issues concerned me and I told voters that they raised a yellow flag, not a red one, for me. I often said that there was plenty of time to address these issues and make a course correction. The efforts I am describing with legislation, and in encouraging dialogue and consensus on the flood wall before pulling the trigger on a $125 million project, and in talking about Metro’s $3 billion unfunded retiree benefits obligations have all been to nudge the city toward the course correction that we need.

Now it is nearly three years later. The transparency added with the new legislation has been a critical first step. But now we need the data to drive decisions. While nobody wishes for a budget crunch or the other chaos of the last few months, maybe there is a silver lining. Nashville is fundamentally very strong. The current storm give us an opportunity to start the hard work and hard conversations we need to strike a new, better balance in how we deal with debt, development, and funding our retiree benefits.

Chasing Down Line 7777

I’ve talked to some MNPS advocates who are bothered annually by Line 7777 in the MNPS budget. It’s called Property Tax Refund and is just over $9 million for the upcoming fiscal year. See page 37 of 42 in the proposed MNPS budget. Here’s what that is…

Property taxes are automatically divvied up to different Metro accounting Funds. Two of those funds are the “Schools Funds” which get about 36.5% of collected property taxes, and the “School Debt Service Fund” which gets about 4.5% of collected property taxes. Again, property tax revenue is allocated automatically to these Funds in these percentages.

However, when MDHA approves tax increment financing for a project, new property tax revenues from that project are pledged for tax increment financing (TIF) loans and are largely not available for use by Metro. For TIF deals before April 2016, none of the new revenues are available to Metro until the TIF loans are repaid (usually in 10-15 years). For TIF deals approved after the Council passed BL2016-157 in 2016, MNPS will get to keep the debt service fund part (4.5%) of the new tax revenues.

So, we have property tax revenues automatically allocated in set percentages to these Funds. But the new revenue from TIF projects mostly needs to be used instead to pay the TIF loans. The technical accounting requires MNPS to receive all the revenue allocated to it, and then to be debited for the portion of MNPS’s allocated property tax revenue that is due to the active TIF loan properties.

Using approximate numbers, from FY2017 (which ended June 30, 2017) to FY2018 (ends June 30, 2018), the budgeted property tax revenue that went to the “Schools Funds” increased about $15 million, from about $298 million to $313 million. For these two years, the property tax revenue that went to the “School Debt Service Fund” increased about $2 million (from $38 to $40 million). In total, overall revenue to MNPS from property taxes increased about $17 million from FY2017 to FY 2018. So that’s great news, right?

HOWEVER — during this same period, the total new property tax revenues for TIF loan properties increased by about $3.6 million. See MDHA reports for the last two years here and here. Remember, MNPD has to “refund” the new revenue it gets from TIF project property taxes. Since MNPS is allocated about 41% of property tax revenue, the additional “refund” to give back in FY2018 was about $1.5 million. (That’s the roughly $3.6 million in total new property revenue that year from TIF properties times the 41% that MNPS is allocated.) That means, in the current FY2018, MNPS got to keep only about $15.5 million of the $17 million in new property tax revenue that was allocated to it.

Mark North pointed out in a 2015 blog post that, back in 2007-2008, the amount of the MNPS refund was $2.3 million. For the current FY2018, with the increased frequency of MDHA TIF loans, the refund had grown to $8.3 million. And for the upcoming fiscal year, the refund apparently will top $9 million.

I haven’t done all the math, but it’s clear that MNPS continues to get substantially more new property tax revenue each year than it has to refund through this arcane and technical process. But the fact is that Line 7777 in the MNPS budget has continued to grow and it does grab attention.

This also squarely points out that Metro is currently using about $9 million per year of property tax revenue to assist with development when that money would otherwise be used by MNPS. Economic development people would say that Metro and MNPS more than make up this amount with increased revenue from our robust economy. School advocates would be quick to point out all the things that could be purchased with $9 million per year for our schools.

Hopefully, this makes sense. Feel free to shoot me any questions at bob.mendes@nashville.gov or @mendesbob on twitter.

Transit/Affordability – April 16 Update

This is my next update about how affordability will interact with transit-oriented development in Nashville. This post is a little (a lot??) wonky — sorry about that. If you need orientation on the issues, it might be helpful to read my two previous posts here and here.

This week, the Council is considered a Substitute Ordinance to approve a Donelson Transit-Oriented Redevelopment District. I believe we will adopt the Substitute and then defer public hearing and second reading until our May 15 meeting. This will allow time for the public to consider the Substitute and for the Planning Commission to have a public hearing about it on April 26.

This Donelson TOD legislation is critically important because it is a real-life demonstration of whether Metro will be as committed to affordability as it will be to building transit infrastructure. It is also important because this legislation will likely serve as a template for future transit development if the referendum passes. I think we are making good progress on the legislation.

For now, to see the proposed Substitute Ordinance, you need to look at the package of amendments and substitutes that Councilmembers get the day before Council meetings — see here, at page 2 to 28 of the PDF. If the Council updates the legislation with the proposed Substitute Ordinance tomorrow, I’ll update the link later this week.

I’ve been working with MDHA for at least a month now about changes to the legislation to make the affordable housing obligations more clear. You should know that Councilmember Jeff Syracuse from Donelson is working really hard on this legislation. His district should be proud of him and his commitment to making this work well for his community.

The proposed Substitute Ordinance is largely agreed to by MDHA…but there are things that we are still discussing. I’m going to run through the changes I have asked for and the current status.

  1. Amend to clarify that a minimum of $10 million of the approved tax increment financing (TIF) will be used for affordable housing. STATUS: The Substitute creates a bucket of $10mm of TIF for affordable and workforce housing. (Remember “affordable” is 0-60% of the area median income, and “workforce” is 60-120% of the area median income.) The Substitute calls for a periodic (at least every 5 years) reassessment of the balance between affordable and workforce housing TIF funds. The Substitute requires that during the initial 5 year term, ALL of the money from this $10mm bucket would have to be used for affordable housing. There is an ongoing debate I am having with MDHA whether to permanently set this bucket for affordable housing only, or to reassess the balance between affordable and workforce TIF every five years. My position is that this plan is being approved for 30 years and that this is a long, long time. I want the Council to be able to reassess the balance between affordable and workforce TIF every 5 five years. I want this Council-involved periodic reassessment to be in the template we use for these districts going forward.
  2. Amend to state that, for every project with residential units that asks for tax increment financing, there will be a minimum of 10% of the units that are affordable. This requirement must apply even if the total amount of tax increment financing for affordable housing in the district has exceeded $10 million. STATUS: Achieved in the Substitute. MDHA agrees.
  3. Amend to state the minimum period of mandatory affordability for residential units financing by tax increment financing. STATUS: Achieved in the Substitute. MDHA agrees. The minimum affordability period will be 15 years (which is pretty long in the affordable housing world.)
  4. Amend to state that, because a TOD is designed for Nashville residents to live along transit corridors, no investor-owned (Types 2 and 3) short-term rentals will be allowed in the TOD. STATUS: Not achieved. I’m giving up on this one. Others will need to pick up this ball and run with it if they think it is important.
  5. Amend to require creation of a unified process for approving design and zoning changes in the district. STATUS: This one is a work-in-progress. MDHA and Metro have told me that they will enter a memorandum of understanding to work to re-invent the way this will work for transit-oriented development districts. The idea is that people shouldn’t have to go to MDHA and Metro to get projects approved. A more efficient process should be built. I haven’t seen a proposed MOU yet. So, for now the Substitute is clear that the design review process in the plan is temporary and can be replaced later. I am hopeful there is more progress on this between now and 3rd reading in May.
  6. Amend to allow both the Metro Council and MDHA to initiate amendments to the plan (instead of just MDHA), subject to the approval of the other body. STATUS: Achieved in Substitute. MDHA agrees.
  7. Amend the plan to expressly acknowledge the new requirements of Metro Code provisions 5.06.020, 5.06.050, and 5.06.060 passed in 2016. STATUS: Achieved in Substitute. MDHA agrees.
  8. Amend to add language in the plan to expressly forbid the use of tax increment funds from this district in any other economic redevelopment district or transit-oriented redevelopment district. STATUS: Not quite fully resolved. MDHA is asking that spending tax revenue from this district could be allowed outside the district if approved by the Council. The Substitute currently calls for this practice to be prohibited. This one is important to me. It is really bad policy to use tax revenue from one development district in some other part of town. I’ll stand firm on this one.
  9. Have the administration (aka Mayor) commit publicly to conduct a survey of affordable housing in the area surrounding the district before creating the district. STATUS: In a video released on April 13, 2018, Mayor Briley said he was “committed to the recommendations” of the Transit & Affordability Taskforce. This was one of the recommendations…but he didn’t mention it by name. I have separately received assurances from people in the administration that I believe that this will be done. So, I consider this issue kind of resolved…resolved, but not in a way I can really prove to anyone.
  10. Have the administration commit publicly to set firm goals for affordable units to be built and preserved in the TOD. STATUS: In the video, Mayor Briley committed to set “ambitious and achievable goals” in each of our TODs. I have also received separate assurance that firm affordability goals will be set for the Donelson TOD. I consider this resolved.
  11. Commit to additional funding above existing levels for affordable housing according to the recommendations of the Taskforce. STATUS: In the video, Mayor Briley promised that, “in the coming years,” he would work with the Council and housing advocates to establish a dedicated funding source for affordable housing and land bank. Honestly, given his short time in office and the looming budget and election cycles, this is probably as strong a statement that he could make and stand by in the future. I consider this resolved.
  12. Prior to the May 1 referendum, commit to create both a community land trust and a community land bank, and commit to funding levels and the timing for each. STATUS: In the video, Mayor Briley expressed support for a community land trust and a land bank. This is good, but falls short of explaining a timeline and funding level. But, again, given his short time in office and all that is on his plate, I don’t know that he could credibly give more detail at this time. I am going to trust him on this one too.

The summary is that I feel good about the direction of this legislation. The goal is to have this legislation be the backbone of a real and continuing commitment by Metro to value affordability as much as we value the physical transit infrastructure.

If you have questions or comments, email me at bob.mendes@nashville.gov, or catch me on twitter @mendesbob.

Transit/Affordability Taskforce Update

About 5 weeks ago, I wrote about the status of Metro implementing the recent Transit & Affordability Taskforce recommendations related to affordable housing. You can read that post here.

Since then, on March 20, I sent a letter to the Metro Planning Commission expressing concerns about the pending Donelson Transit Oriented Development legislation. That letter is here. In the letter, I listed out 10 things I wanted to see changed by MDHA with the development plan, and listed another 4 things I would like to see from the administration.

I can report progress is being made on the development plan as it relates to affordable housing. It is still a work-in-progress though. I believe the scheduled Metro Planning Commission meeting on April 12 to discuss MDHA’s transit oriented development plan for Donelson will be deferred until April 26. And I believe CM Jeff Syracuse may defer the Council’s public hearing on this, which is scheduled for April 17, until May.

Frankly, now isn’t a great time for a meaningful update because things are mid-negotiation. But with early voting starting today, a lot of people have asked me where things stand. So…here’s an update…

First, some background…

Everyone agrees that high-capacity transit corridors tend to increase property values, which in turn decreases affordability. The question is whether Nashville can build a culture around transit construction that values maintaining, or even increasing, the number of affordable housing units as much as we value the transit infrastructure itself.

To address this important topic, last November, Mayor Barry appointed a Transit & Affordability Taskforce chaired by Bill Purcell and Brenda Wynn. I was asked to chair the affordable housing subcommittee. The taskforce met extensively for nearly two months and issued a lengthy report with many recommendations. Through the process, the affordable housing subcommittee had in mind that plans were underway for a transit oriented development district in Donelson. I think I can speak for the full subcommittee when I say that we considered the proposed Donelson district as an important test case. This is because whatever we create in Donelson will likely be the template for perhaps another one or two dozen similar transit oriented development districts on all of our major transit corridors.

Another bit of background you need to know is about the players. A transit oriented development district is a new concept — there are currently none in Tennessee. To create a district, MDHA’s board must approve a development plan. Then the Metro Council has to approve it. Once approved by the Council, these districts typically last for 30 years!! And they typically give MDHA the power to offer many tens of millions of dollars of tax increment financing.

The final background I will offer is that MDHA’s board approved a Donelson transit oriented development plan in late January. After my March 20 letter, and discussions with me and others, I understand that MDHA’s board approved a revised version yesterday (April 10). I haven’t seen that yet, but I’ve been told what to expect. The development plan still needs to go before the Metro Planning Commission (on April 26, I am expecting) and ultimately the Council (in May).

The current status…

In my March 20 letter, I had 10 items I wanted to see MDHA change in their development plan. As of today, I believe that we have an agreement to add 7 of the suggestions to the plan, that we are still talking about 2 of them, and that 1 has been rejected. Again, if it weren’t for early voting starting and people wanting to know about the status, I wouldn’t want to give a mid-negotiation update — partial information can be more confusing than no information. MDHA is working in good faith with me and others to help build a good template for future transit oriented development. But I don’t have a final revised plan to share with you today.

In my March 20 letter, I also listed 4 things that I would like to see from Metro before we pass the Donelson transit oriented development legislation. With the understanding that it may be another month before the final legislation is before the Council for a final vote, I have to report that none of those 4 things have been accomplished. I will repeat again…it is a month at least until a final vote, so there is time…and clearly our new Mayor has a lot on his plate…and I am only giving an update now because early voting has started and people are asking me for an update. For these reasons, I am not making any final conclusions one way or another about these items remaining incomplete as of today.

People will need to make their own decisions about what this all means for Metro’s commitment to be as serious about affordable housing along transit corridors as it is about the transit infrastructure itself. A glass-half-full view would look at MDHA’s engagement on the taskforce recommendations as a strong positive. A glass-half-empty view would look at the other recommendations and wonder whether affordable housing will always play second fiddle to the transit infrastructure instead of being a co-equal objective.

I am hoping that this update doesn’t create more confusion. Feel free to email me at bob.mendes@nashville.gov or tweet at me @mendesbob with questions or comments. Thanks, everyone.

 

Transit/Affordability Taskforce – 2 Months Later

Transit is about more than trains and buses. It is also about how high-capacity transit corridors will interact with neighbors, residents, and existing small businesses. Last fall, the Mayor appointed a Transit & Affordability Taskforce to address these issues. The taskforce’s final report and recommendations came out on January 10, 2018. You can find it here.

I promised the housing advocates on the taskforce that I would help with after-the-fact accountability.

Fortunately, there was always going to be an early opportunity for Metro to implement the recommendations. In the next few Council meetings, the Council will see legislation to create a Transit-Oriented Redevelopment District (or “TOD”) in Donelson. I have seen a draft of the written redevelopment plan, which has already been approved by the MDHA board, and I have seen an early draft of the legislation.

This Donelson TOD is critically important. It will be used as a template for transit-oriented development on every major transit corridor in Nashville. The administration and transit planners intend for there to be a TOD district along every transit corridor and at every major transit hub. The long-term transit plan expressly intends to use TOD districts to capture a portion of increasing property taxes to pay for the necessary major infrastructure and to spur private development along the transit corridors. So while the referendum has not yet passed, this Donelson TOD will lay the groundwork for how transit-related development will work throughout the city.

This is a good time to take a first look at how Metro is doing with some of the taskforce recommendations. I will list some of the recommendations and describe the status of implementing the recommendation:

Recommendation: “Full neighborhood assessment of affordable housing stock and housing-related wrap-around services before transit development begins…This pre-transit development assessment must not be limited to just the 0.25 miles on either side of the corridor. Instead, the assessment must take into account typical neighborhood boundaries.”

Status: No action taken.

Recommendation: After conducting the full neighborhood assessment of affordable housing, firm goals for preserving and creating affordably housing units should be established: “Once there is enough information, firm goals should be established. All policies and tools must work in concert to achieve these minimum numbers.”

Status: No action taken. No goals for the number of affordable unit to preserve and build have been set.

Recommendation: “For funding and building affordable housing in TODs, Metro and MDHA should seek to reduce or eliminate the current structure where there are two separate decision-making tracks – one with Metro and one with MDHA.”

Status: No action taken. This is a big deal. In existing economic redevelopment districts (like around Rolling Mill Hill), MDHA has the full power to set the level of affordable housing (even 0%) for each building getting tax increment financing in the district. These districts last for 30 years, and Metro has no say on issues like this during the 30 years. Remember that MDHA is not part of the Metro government (because it is created separately under state law) and does not have to listen to the Mayor or the Council when deciding on the level of affordability to require in a building. As the train is leaving the station on transit-oriented development, we need a new model about how Metro and MDHA work together to make sure Metro gets the final say on how these things will work on our transit corridors over the next 30 years.  (This is not a knock on any of the people in and around MDHA or its board. My objection here is about the process. MDHA is simply not a part of the Metro government, and its board is not elected. It doesn’t make sense to hand over so much final decision-making to an outside authority for all of the real estate around all of the important transit hubs on all of our transit corridors for multiple decades. We can do better than that.)

Recommendation: “In advance of the anticipated May 2018 transit referendum, Metro should make a public statement committing to the timely creation of a community land bank and community land trust, describing the timeline for creating these, and describing anticipated funding levels.”

Status: No action taken regarding a community land bank. For a community land trust, the administration has said that one will be funded in fiscal year 2020. No information has been provided about a funding amount.

Recommendation: “A resounding recommendation from all committees was the need for a dedicated public funding source for both affordable transit-related housing and small business space development and support. The new public funding should be an amount equivalent to at least 2% of the expected capital project costs for the Let’s Move Nashville program (which is proposed to be approximately $5.4B in 2017 uninflated dollars). This new resource should be designed so that each dollar of public funding is leveraged with other funding sources with a goal of a 3:1 leverage ratio. This is in addition to any pre-existing levels of affordable housing funding, and also in addition to any financing funded by tax increment financing (TIF).”

Status: No action taken. No information has been provided about accomplishing this goal.

Recommendation: Because we are trying to build housing stock along transit corridors for Nashville residents and not visitors, the recommendation was: “No investor-owned (Types 2 and 3) short-term rentals in TODs.”

Status: No action taken. This restriction isn’t in any of the documents I have seen so far. (And, yes, it would be legal for Metro to withhold permission there to be short-term rentals in projects that are funded by our property tax dollars through tax increment financing.)

I recognize that there are powerful forces pushing all of us on the referendum. This post isn’t meant to comment on that. My goal is to provide some early feedback that Metro is not yet doing what it will take to succeed in maintaining and building our neighborhoods and meaningful affordable housing around transit development.

I also recognize that it is only a few months since the Mayor’ taskforce released its recommendation to her. But life is coming at Nashville fast, and we can’t afford to be wait. The legislation for the Donelson TOD is still being pushed forward. I hope the administration can find the time and resources to implement these recommendations.

What’s next for the transit referendum?

As Nashville digests yesterday’s news about the Mayor, many people are asking what it might mean for the transit referendum. The Council is set to vote on our third and final reading on February 6. If we pass the bill, then the transit plan and the proposed new tax surcharges will be on the ballot for a public referendum on May 1. If we delay at all, May 1 will be impossible and advocates would have to decide whether to try to get the referendum on the ballot for either the August or November 2018 election.

I don’t have a great answer for what the impact on transit will be. For me, the starting point is that the Mayor has been the public face of the drive toward passing a transit referendum on May 1. After yesterday, if she can regain the public’s trust, it will take time. The question is whether a May 1 transit referendum can succeed during this period of diminished trust and confidence in the Mayor.

I have my doubts about whether it can pass in May – I just don’t know. If the Mayor’s indiscretion is in the news through early voting and election day on May 1, it seems like it would be hard for the referendum to pass. At a minimum, I think everyone would have to agree that it would be an uphill battle if the transit conversation is competing for airtime every week with investigations and inquiries. The risk of the transit referendum failing in this situation seems high and should make anyone consider pushing it off to an August or November 2018 election.

On the other hand, pushing off the referendum wouldn’t necessarily foster a better environment for the public to consider whether to adopt the transit plan and the proposed new tax surcharges. It is hard to predict whether a weakened administration would hamper a vote later in 2018 too, or if the delay would allow enough time to clear the air so more attention could be paid to the referendum. There just isn’t clarity about how this would play out.

So the choices are to have a May referendum with the face of the transit campaign weakened and working on rebuilding trust in the stretch run up to the election, or delay the referendum and hope circumstances will allow Nashville to focus more on the transit referendum. Which would you pick?

On top of this, I have been revisiting my thoughts about the transit plan itself. My earlier posts are here and here. For those of you that have read them, you know that some parts of the transit financial plan have given me pause. For example , it still has not been well discussed in the media that the transit plan assumes paying interest only until 2032 on $3B in revenue bonds. After that, principal gets added to the payments in increments each year through 2039. From 2040 to 2060, the plan calls for level principal payments of $226 million each. The reason the principal payments increase over time before leveling off for the last 20 years is because projected revenue from the new tax surcharges won’t support full principal and interest payments until 2040. In turn, if there isn’t enough revenue generated to make full principal and interest payments until 2040, this begs questions about how we might pay for a next phase if we were to decide in the 2020s that we would like to extend a rail line to the county line.

The question I started with was how the Mayor’s situation might impact the transit referendum bill the Council is considering on February 6. At this point, I don’t know. I’m going to have to see how the next several days play out.

Where to start?

This evening, Mayor Barry acknowledged publicly that she had an extramarital affair with her now former security detail leader. It’s shocking news.

As an At-Large member of the Metro Council, I think it’s my job to communicate the feelings of the county as I understand them. Because the news is so new, maybe tonight’s sentiments will be wrong and won’t stand the test of time (or even a few days). But I don’t think it does any good to remain silent.

My first reaction was to think about the various people and families involved. There must be pain and difficulty all around this evening. That’s a shame. I feel bad for the families that are involved.

Beyond that, the two things people are talking to me about are whether this impacts how we should think about the Mayor as a person, and whether this impacts how we should think of her as the city’s leader.

First, as a person, I don’t know the circumstances of the private lives (to the extent they are private) of the people involved. I can’t judge them.

I do want to mention the reactions from my 14 and 16 year old daughters about the news. Of course, due to other world social media skills, kids these days know everything at least as quickly as adults do. One said, “I’m mad. I liked her.” The other said, “Odd. Surprising.” I counseled them to not judge. The bottom line is that a role model was diminished today.

As for the Mayor’s ability to lead, I think that’s going to be complicated. As she noted in her comments to the media today, there are probably more bad days ahead on this.

I think the idea that the travel was totally okay because she needed security anyway is not very satisfying without knowing more. As a friend of mine texted me earlier this evening, “The misuse of tax funds and trust issues are big. Two consenting adults or not.” I don’t know enough yet to comment on whether there was any misuse of tax funds. But the Mayor has already acknowledged that the situation shows poor judgment — she said, “I knew my actions could cause damage to my office and the ones I loved, but I did it anyway.” And her press statement also explained that she’s disappointed in herself. We’re disappointed too.

More broadly, the question is about what this significant example of admitted poor judgment means for Nashville? For transit? For soccer? I have heard a few argue that the merits of the projects remain unchanged…so there should be no impact. Many more feel that the city’s trust and confidence in her is deeply tied into her administration’s objectives.

Just yesterday, for example, Joey Garrison posted a short video clip of the Mayor responding to a question about whether the city should be committing to the full transit price tag before knowing the details about exactly what will be built and when. The Mayor’s response, and I am paraphrasing some of this, was that, yes, it is a lot of money and there are details to work out later, but everyone will have to make a “little leap of faith.” Well, that answer yesterday captures the issue. Will questions about trust and confidence keep people from making that leap of faith? Will the Mayor be able to repair the trust relationship with voters before a transit referendum takes place? Will the Mayor be able to continue to be the face of the pro-transit advocacy efforts?

There are also a lot of questions about the use of government resources. Citizens will also want to know “who knew?” Did the rest of her security detail know? These are all fair and expected questions. At the press conference today, the Mayor apparently said that her office would make all records available. I expect multiple people in government and in media will take her up on that. As one of two Council members on the Metro Audit Committee, I think it is appropriate for Metro Audit to be involved in this process. This evening, I asked the Metro Audit Department to review today’s media reports and propose a scope of inquiry about the expense questions that are being raised. I imagine the Mayor is expecting this to happen.

I am definitely asking questions more than I am giving answers. But again, for tonight, I just want to express what I am hearing from our neighbors. I am sure this situation will continue to develop in the coming days.

Finally, to comment more specifically on transit…the Council will vote on February 6 about whether to put the transit referendum on the ballot on May 1, or not. I assume that the very well funded PACs behind the referendum push are going to do some quick polling before next Tuesday’s vote to get some sense of what it means when the face of your campaign has this sort of news about 70 days before early voting. I don’t know the answer. But I would urge that, if the polling looks weak, don’t hide that fact. Act on it. Share the information.

I’ll update my thoughts if necessary. Thanks, everyone. This hasn’t been a great day, but we’ll be okay. Nashville is stronger than the news of any one day.

The $5.4B is for new rail AND bus capital costs

This week, I have been trying to clean up some discrepancies and debates that are going on about the proposed transit plan. My earlier posts are here and here.

One argument people are having is about whether the $5.4 billion listed in the referendum language refers to light rail capital costs only, or to light rail AND bus capital costs. This debate arises from page 49 of the Transit Improvement Program.

On page 49, there are two different numbers that are both close to $5.4 billion. You’ll see that there are two columns…the first shows the present value of expenses in 2017 dollars, and the second shows the amounts to be spent in the “YOE” or “year of expenditure.” So, for example, in the “Music City Star” row, it says $30 million in the first column and $40 million in the second. This means that, after taking expected inflation into account, the total amount of checks to be written for the Music City Star over 15 years will be $40 million. But, in today’s money, this is only $30 million.

Here’s where the confusion starts. The cost of rail corridor improvements in the “YOE” column is $5.475B (which would actually round to $5.5B).  And separately, the present value of the cost of both rail and bus improvements in the “$ 2017” column is $5.354B (which rounds to $5.4B). Both of these numbers are very close to $5.4B and have created confusion.

The referendum language uses $5.354B, which represents the present value in 2017 dollars of both the rail and bus capital improvements.

One of the talking points filtering around social media and also in some live conversations I have had is that the $5.4B number in the referendum is supposedly misleading because it only includes the rail improvements and not the bus system improvements. I think this talking point started innocently from confusion over two numbers that are coincidentally similar. But, the referendum’s use of $5.354B is accurate and definitely refers to the present value of rail and bus capital improvements.

Getting to the bottom of the debate over $5.4B versus $8.9B

There has been some debate about whether the upcoming transit referendum language should include just the capital cost of the transit plan in 2017 dollars ($5,354,000,000) or also include additional information. In particular, one Council member has suggested adding language to the referendum stating that the “total cost for the transit system” is $8,951,062,000. The debate over this is slipping into a bit of name-calling. Here’s my take.

Before getting into the meat of this, there are three things to consider while you read this. First, debt is not inherently bad. Debt that can be reasonably managed to buy an asset you need is good. Debt incurred at exorbitant rates from a loan shark for a luxury item is bad. There are lots of shades of gray in between. Deciding on whether debt is good or bad requires balancing how badly you need the asset, the cost of paying the debt over time, and whether you can afford it once you consider all your other annual/monthly obligations. In nearly any situation, focusing on either the initial purchase price or the total amount of checks you will write over time to pay the debt is distracting. The question is about need, the cost to service the debt, and how that fits in with your budget.

Second, keep in mind that the 15 year length of the proposed transit plan is somewhat arbitrary. The State IMPROVE Act requires Metro to have the Comptroller and an independent CPA agree that the math in our transit plan adds up correctly. I understand that the Comptroller dictated to Metro that 15 years was the amount of information to present and get approved by the CPA firm. To be clear, the transit system will NOT be paid for in 15 years. The plan anticipates paying revenue bonds all the way through 2060.

Third, the State IMPROVE Act is also very clear that the referendum language has to be 250 words or less, and it must include the initial cost of the plan, as well as the recurring cost. This is pretty precise — it requires disclosing the initial capital investment and the expected annual operating losses. (Remember literally all transit systems lose money annually — that’s why it is important to disclose the expected recurring costs.)

Also, check out my post last night about transit. Especially the parts about financing provide context for thinking about this issue.

Okay — back to the $5.4B versus $8.9B argument…

To start, nobody has hid the ball on either number. Both numbers are in the Transit Improvement Program. You can read pages 46 to 55 of the Transit Improvement Program…you’ll see both discussed in detail. (I would concede to transit critics that the glossy pitch materials focus on the $5.4B number. But, the $8.9B number is clearly presented in the financial information in the Transit Improvement Program.)

Also, aside from not being part of what is required by the State IMPROVE Act, the proposed language saying that the total cost of the transit plan will be $8.9B is not accurate. It would be accurate to say that the total amount of checks that will be written by the end of 2032 will be $8.9B. But that’s not the same as the total cost of the transit plan. To get the total on the amount of checks that will be written to pay for the proposed transit plan, you’d have to include all of the principal and interest payments on the revenue bonds through 2060. And, then you’d have to decide whether you also wanted to keep including annual operating expenses for this additional 28 years. I’m not going to do the math, but that “total amount of checks we’ll write” number gets bigger over time through 2060.

So…the factually accurate statements would be:

  • “The capital cost of the program is estimated to have a present day value of $5,354,000,000” — this is what is in the referendum.
  • “The total amount of checks to write through 2032 for the transit system is $8,951,062,000” — this would make clear that we were only talking about the first 15 years.
  • “The total amount of checks to write through 2060 for the transit system is <<<I’m not going to do the math, but it’s bigger that $8.9B>>>” — again, this would make clear what timeline we were talking about.

I strongly feel that we should leave the referendum with its current language (option #1). Having the referendum say $5.4B for capital costs in today’s dollars is consistent with the IMPROVE Act. Also, when deciding whether debt is “good” or “bad”, it just isn’t helpful to add up the total amount of checks you’ll write over time. The focus should be on need and annual affordability (and as discussed in last night’s post, how to pay for a next phase of construction). And finally, looking at the total amount of checks to write over a 15 year period is certainly not helpful in deciding whether to take on debt for the proposed transit system.

There are legitimate questions that people are asking in trying to understand the proposed sales tax structure and about affordability. My suggestion though is that focusing on the total amount of checks to write over many years is not how people typically think about whether debt is a useful tool.

Transit thoughts – 1/23/18

Last August, I put out a list of questions I would need answered in order to vote to put the transit initiative on the May 1 ballot. The proposed Transit Improvement Program answered all of these questions and more. So, I am voting to put the referendum on the ballot. Tonight we approved the referendum on 2nd reading. The 3rd and final reading will be on February 6.

I would like to go through some important details that haven’t been discussed thoroughly in public yet. I am going to start with some relatively simple details and then move to more complex funding issues:

  • Nomenclature: When the state enacted the IMPROVE Act, it authorized counties to create certain tax surcharges to fund an approved “Transit Improvement Program.” The 55 page document I link to above is Metro’s proposed Transit Improvement Program. That is the technical document that would be funded by the proposed set of new tax surcharges. From my perspective, the “Let’s Move Nashville” web site includes lots of interesting and necessary explanations, graphs, and details. But, technically, the only information that matters is the Transit Improvement Program. If you want to know what you are voting to fund, that 55 page document is what you should read.
  • What about federal funding?: Many people have asked what happens if the anticipated federal funding is not available. The first answer to this is that the proposed transit program assumes federal funding that is consistent with historic levels. If that level of funding is not available, we will have to find alternative funding (unlikely), or parts of the system could be scrapped (probably unlikely), or the system will take longer than the anticipated 15 years to build (most likely).
  • Are we locked into the plan or can it change?: Plans can change as years unfold. The question is to ask what approvals will be necessary to make changes. The best advice at this time is that relatively small changes (like the sequence rail lines are built) probably require little formal approval outside of annual budgeting hearings. At the other end of the spectrum, major additions or changes to the system described in the Transit Improvement Program will probably require an additional ballot referendum. In the middle, there might be gray area changes where it is not clear today what authority will be needed. For example, if a new rail line were proposed, but it was not going to use the new tax surcharges as a funding source, then that might not trigger an additional ballot referendum.
  • No general obligations bonds are anticipated: Multiple people have asked me whether Metro can afford the additional $3 billion in bond debt anticipated in the transit improvement program. People need to know that only revenue bonds supported by the new tax surcharge revenue are planned. No general obligation bonds are part of the transit improvement program.
  • The details about the revenue bonds are important: During the 15 year transit improvement program, the plan is to issue $3 billion in revenue bonds supported by the new tax surcharges. At the end of the 15 years, we will have only paid interest on these bonds. The full $3 billion in principal will still be due when the construction plan is complete in 2032. From 2032 to 2039, the amount of annual payments will increase from $166 million (2032) to $224 million (2039). Then from 2040 to 2060, the program calls for level principal and interest payments of $226 million per year.
  • Why do the revenue bond payments ratchet up through the 2030s and not level off until 2040?: The short answer is the revenue from the new tax surcharges is not expected to be high enough to support the full principal and interest payments on the $3 billion in revenue bonds until 2040. The revenue bond repayments will be “sculpted” to fit the expected tax revenue stream. If you have wondered why Metro isn’t building the light rail lines out to the county line from the start, this financial modeling about the expected tax revenue is the key to the answer. Please understand that I am not presenting this feature of the economics as “good” or “bad.” It is however something that informed voters should know about.
  • What happens when we want to expand the transit system?: First, it is important to know that the system is meant to be successful as designed. That said, it is also important to consider what happens if we want to expand the light rail system out to the county line in any direction. All of the previous four bullet points are important for this question — the big issues are about what it would take to approve a major addition to the system, and about whether there will be funds available to pay for a major addition. Here are the basic options to pay for a major additional line or a rail extension to the county line: (1) wait until the late 2030s when our growing city will generate enough sales tax revenue to pay for additional major capital transit improvements; (2) find a new funding source beyond what will be on the referendum in 2018; and (3) further “sculpt” new revenue bond issues to have payments more backloaded instead of having level principal and interest payments from 2040 to 2060.
  • How is Metro integrating transit planning with other important government functions?: If funded, the transit improvements over the next 15 years will be monumental. There are a lot of question about how transit development will impact affordable housing, small business, neighborhoods, sidewalks, parks, and greenways. To get a jump on this, the Mayor appointed a taskforce to look at issues related to transit and affordability. The taskforce delivered its recommendations to the Mayor on January 10. You can see a copy here.

On February 6, it is almost a certainty that the Metro Council will vote to put the Transit Improvement Program referendum on the May 1 ballot. I hope voters take the time to look at the full program. If you have any questions or comments, let me know at bob.mendes@nashville.gov.